In the chaos of your divorce, taxes are probably low on your priority list. But, that April 15 deadline can sneak up on you, and suddenly, you are panicking about how your newly single status affects your taxes. To help prevent that panic, here are five steps to help you understand your new tax situation after your divorce:
Step 1: Determine Filing Status
Your filing status depends on when your divorce is final. If your divorce is official by December 31, you can not file with a married status. That means both “married filing jointly” and “married filing separately are not options for you. If your divorce is finalized in January, then you were still married for the year you are filing taxes in the eyes of the IRS. Because the April 2024 tax filing deadline is for income in 2023, your December 31, 2023 marital status determines your filing status. You must file as married if you were still married on that day.
If you were still legally married on December 31, you can choose to file jointly or separately, both with a “married” status. Which option is best will depend on your specific finances. It may make sense to consult a financial planner or tax accountant.
Step 2: Determine Who is Head of Household
If you don’t file a joint tax return, there can be financial advantages to declaring yourself a head of household. Which spouse can use this status should be determined during your divorce negotiations and may be included in your settlement. If you and your ex share custody of a child, only one of you can file as household head.
You can use a head of household filing status if you meet all of these criteria:
- On December 31 of the year for which you are filing, your divorce was final, or you were legally separated.
- For more than six months of the year, you lived with a qualifying dependent. In most cases, this would be your child or children.
- You paid for more than half the costs of maintaining your home. These costs include food, utilities, real estate taxes, rent, home maintenance, and other associated expenses.
Remember that if you share a child with your former spouse, only one of you can use that dependent to claim head of household status. If you are uncertain who that should be or your spouse is arguing with you about this point, consult your lawyers for child custody.
Step 3: Update Your W-4 Information
If you are employed, you have a W-4 on file with your employer. A W-4 is the form that tells your company how much money to withhold from your check and send to the IRS. When your marital status changes, it affects your withholdings. Joint-filing married couples typically split their W-4 withholding between spouses. After your divorce, you may want to adjust or recalculate your withholdings.
Step 4: Account for Alimony; Ignore Child Support
If you paid alimony in the year for which you are filing taxes, that amount is usually an above-the-line deduction from your taxes. That means the amount paid is subtracted from your gross income, creating an adjusted gross income from which you calculate your taxes.
If you received alimony, the amount of those payments is usually considered income. That means you must report it on your taxes on IRS Form 1040.
While your divorce decree may stipulate something else, in most cases, paid alimony is used to reduce the payer’s taxable income and is considered taxable income for the recipient.
What about child support?
Unlike alimony, child support payments are not deductible from your taxable income. They also aren’t reportable as income. If you receive child support, there is no need to report that on your tax return. If you pay child support, you do not receive a tax advantage for doing so.
If you have questions about the tax implications of alimony or child support, bring them up with your divorce law attorney. Your decree may account for these items in a non-typical way. Make sure you understand any mention of taxes written into your divorce documents.
Step 5: Determine Who Can Claim Children as Dependents
Your number of dependents affects your filing status and the claiming of available tax credits. It’s essential to get this number right when you file.
Unless your decree states otherwise, the custodial parent claims their child as a dependent. In most cases, the custodial parent is the one the child lives with for most of the nights during that tax year.
As a custodial parent, you can claim the earned income tax and child and dependent care credits.
As a non-custodial parent, you can not claim these credits in most cases. However, IRS form 8332, the Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, can change that.
If the custodial parent signs this form, they permit the other parent to claim the Child Tax Credit and Additional Child Tax Credit. You need a separate copy of Form 8332 for each child. Before signing this form, consult with your divorce attorney and consider receiving advice from a tax professional. Once you sign this document, you can not revoke the change until the following tax year.
Your custodial or non-custodial parent status may also affect available state income-tax credits. In March 2023, Utah enacted its first state child tax credit of $1000 per child aged 1 to 3. This credit goes into effect for the 2024 tax year. The lawyer for your divorce case in Weber, Davis, or other parts of Utah can help you understand which parent qualifies for these credits. Typically, that will be the custodial parent.
The good news is that you will find answers for most questions about filing taxes after your divorce in the first year post-divorce. The following years should be much easier. Unless there is a change in alimony or child custody, you shouldn’t have to reexamine your situation or redo these steps. If you have any questions, working with your family law and divorce attorney or a tax expert can help you understand your new, post-divorce tax situation and ensure you get all the credits to which you are entitled and don’t pay more taxes than necessary.